Turkish gov’t delivers forestry permit for Alamos Gold’s Kirazli

Shares of Alamos Gold (TSX: AGI; NYSE: AGI) listed on the Toronto Stock Exchange jumped 14%, or $1.43, to $11.57, after the company reported that it had received a key forestry permit for its Kirazli gold project in Turkey.

Turkey’s federal government has already approved the project’s environmental impact study, which leaves the business opening and operation permit (GSM). Mining analysts covering the company say that this permit — granted by the governor of the local province of Canakkale — could be relatively easy to get.

“The governor is appointed by the ruling AK Party, and our understanding is that this permit does not involve a major amount of government study,” Haywood Securities analyst Kerry Smith says of the outstanding GSM. “We would expect this permit in the second half of 2017, and once received, Alamos would be in a position to move ahead with development, subject to the remaining minor bureaucratic permits needed in Turkey.”

Brian Quast of BMO Capital Markets called the Jan. 5 forestry permit news “a long-awaited milestone,” and noted that “although not all permits are in hand yet, the market will likely view the reception of the forestry permits as a precursor to the remaining permits.” Quast forecasts first gold from Kirazli in the third quarter of 2018.

At Macquarie Research, Michael Gray said he expects construction at Kirazli to start in mid-2017. The mining analyst also removed the 15% asset discount on net asset value (NAV) that he had on Kirazli for a revised $210 million NAV (previously $179 million), which increases his NAV per share by 16¢.

Alamos Gold’s Kirazlı gold development projects are located in Çanakkale Province on the Biga Peninsula of northwestern Turkey. Credit: Alamos Gold.

“With an eight-year mine life at 90,000 oz. per annum (Macquarie’s estimate) from a simple open-pit heap leach, Kirazli will be a significant producer for Alamos Gold,” Gray said, adding that the company is his “top pick” amongst intermediate producers.

Alamos Gold has three operating mines in North America: Young-Davidson in northern Ontario, and Mulatos and El Chanate in Sonora, Mexico.

In addition to Kirazli, the company’s portfolio of development-stage projects include Agi Dagi and Camyurt, also in Turkey; Lynn Lake in Manitoba; Esperanza in Morelos, Mexico; and Quartz Mountain in Oregon, United States.

Describing 2016 as a “breakthrough” year, Alamos Gold reported that it produced 392,000 oz. gold last year, while lowering operating costs. Although it has not finalized its all-in sustaining costs (AISCs) for 2016, management said it expects US$1,000 per oz., down from 2015’s US$1,091 per ounce.

The company says consolidated AISCs in 2017 should fall to U$940 per oz. — a 6% year-on-year decrease.

Total production in 2017 is an expected 400,000 to 430,000 oz. gold.

The company has earmarked $24 million for exploration in 2017, and will focus nearly 90% on its Mulatos and Lynn Lake projects.

The company’s shares finished at $10.48 at press time.

BMO’s Quast has a target price on the stock of $12.50 per share, while Macquarie’s Gray forecasts $13 per share.